By Ian McConnell
THE UK is expected by company finance chiefs to fall into recession within the next year as inflation bites.
A survey by accountancy firm Deloitte shows chief financial officers (CFOs) in the UK are now assigning a 63 per cent probability to a recession within the next year.
Finance chiefs expect benchmark UK interest rates to rise to 2.5% by June 2023, from 1.25% currently. In the first quarter, they had projected UK base rates would reach 1.5% in a year’s time. And 86% of chief financial officers now anticipate annual UK consumer prices index inflation will exceed 2.5% in two years’ time. Thirty-nine per cent think inflation will settle between 2.6% and 3.5% in two years’ time and 47% expect it to remain above 3.5% on this time horizon.
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Two out of five finance leaders report that their businesses faced significant or severe recruitment difficulties in the second quarter. This 40% figure is up from 35% in the first quarter, and chief financial officers anticipate labour shortages will persist, with one-third saying these will be significant or severe in a year’s time.
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Thirty-one per cent of finance chiefs reported significant or severe levels of supply-chain disruption in the second quarter. While a modest improvement in conditions is expected, a still-sizeable 22% forecast similar levels of disruption in a year’s time.
Ian Stewart, chief economist at Deloitte, noted defensive positioning by finance chiefs but observed risk appetite was relatively solid.
He said: “The chief financial officers of the UK’s largest companies are braced for a recession. Finance leaders have edged towards more defensive balance sheet strategies, particularly cost control and building up cash.
“Yet CFOs are not in batten-down-the-hatches mode. Risk appetite is only slightly below average levels, and well above the lows seen in the financial crisis, at the time of the EU referendum and during the pandemic.”
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